Penny wise, pound foolish

I just read the open letter of Moaz Yusuf Ahmad, founder of TRANSIT Malaysia.

To a large extent, I agree with him. Mismanagement, poor investment, and severe economic distortions plague the Klang Valley (and to the lesser extent, other Malaysian cities). I disagree with a few points – for example, the three mass transit companies that created PUTRA LRT (now rapidKL’s Kelana Jaya line), STAR LRT (now rapidKL’s Ampang and Sri Petaling lines) and KL Monorail weren’t private initiatives. They were public-private initiatives, with significant GLC equity.

My fundamental disagreement however is with the idea of more investment.

Firstly, the state of Malaysian public finances is terrible. There are limits on how much the federal government can invest without affecting the macroeconomic stability of the country.

Secondly, some of the most worth it investment can’t possibly be afforded by Malaysia today. Increasing the rolling stock and fleet of public transport operators may be a good thing, and even necessary so it could cope with demand, but the more long-term strategic investments is too expensive for Malaysia to spend right now. For one, replacing most of our rapid transit system in KL with a proper mass rapid transit system (which has lower operating cost per passenger and higher capacity to cope with the demand) should be a goal – but it is just far too expensive for debt-ladled Malaysia to handle.

Thirdly, congestion and poor public transport can be fixed without breaking the bank.
1. Remove price controls for petrol and diesel – this will prevent subsidization of fuel. Better yet, impose a tax on it. Its a lot better giving cash handouts to poor households than to control fuel prices.

3. Create a public transport authority – a single source of decision-making, regulation and enforcement. There are too many agencies behind public transport, which lends to incoherent policy, expensive red tape and a poor regulatory environment. Points 4 and 6 especially won’t work without a local, responsive and centralised authority.

4. Revamp the bus system – assign fare and routes, and let private (yes, private, not GLC) companies bid for routes (or groups of routes). A system of fines can be used to ensure bus companies to a set of KPIs – like frequency, maintenance of busses, etc. The contract can be re-tendered if a private company fails to meet KPIs.

5. Because busses won’t be enough, I’d say allow mini-busses or paratransit. Essentially paratransit involves flexible routes. It is extremely efficient (try living in a city that depends on it, like Bandung – its awesome). And it can be modernised, if Hong Kong is any indicator. And because this can be an entirely private endervour, it doesn’t cost a public dime.

6. Deregulate taxi fares. Or at least set them at market clearing rates. Taxis, while should be treated as chauffered cars in things like tolls (currently they pay less than private cars) and congestion charge, is necessary to a functioning public transport system. The wide availability of taxis makes it easier for commuters to give up their cars – if they’re in a hurry or when public transport doesn’t cover a journey (such as late-night journeys), they aren’t left on a lurch. A market-clearing metre rate will end touting and price-jacking, and will encourage more taxis to enter the market.

7. For trains/rapid transit, I see past investment as a sunk cost – if there is no way to run the system without actively subsidising it, I think the mature thing to do is to shut down rail services. By actively subsidising lines, it will create an impediment towards good, forward-looking investments when Malaysia is better capable of making them.

When Malaysia can better afford it, we should build several metro (four to eight car mass rapid transit), light metro (less than four car MRT), light rail (and I don’t mean the KL definition of it, I’m thinking more along the lines of Dublin’s Luas and Portland’s MAX), bus rapid transit, and suburban rail lines. All of these require high capital investment, investment we scarcely can make now.

But by taking the policy steps I recommended, it would alleviate the dire conditions of transport and air quality in the Klang Valley. Moreover, it would discourage sprawl (as the external cost of it – congestion and pollution – are internalised) – making any future rapid transit system significantly easier to design and build.

I strongly disagree that a public transport system needs subsidization. Instead, its infinitely more efficient to have targeted subsidies (handouts to poor households) and tax reduction (abolishing or lowering the company tax will do more to lower prices than perpetuating price controls, for example).

P.S. I’m aware that none of this is politically feasible. Some are too unpopular – floating fuel prices, fuel tax, and congestion tax. And others just deprive cronies of their leakages. Or both. Except, perhaps, recommendation no. 5.

Related

One Comment

As a user of public transportation for the more than 6 years, I wish to share my views especially on your third point.

1. Remove price controls for petrol and diesel …

While I don’t agree with petrol and diesel subsidies and price controls, I think a sudden withdrawal would cause a massive shock to the public transportation system. Currently it cannot even cope with the existing users let alone the potential new users migrating from private transport. The withdrawal of subsidies and price controls is the right thing to do for economic reasons but for it to be practical, it must be done in tandem with improvement to the existing public transport system.
Another issue to consider is the fact that there are a lot of areas in Klang Valley that are not covered by the system. Without improvement to the system, the people of say, Puchong will be left with no credible means of transportation.

Again, while this is a fantastic idea, it is practically suicidal to do this without having a reliable public transport system in place first. London, New York, Singapore etc have reliable and affordable public transport system so it’s not a problem for them. Not us. And the way town / urban planning works in this country, it has to improve significantly before this proposal should even be considered.

3. Create a public transport authority – a single source of decision-making, regulation and enforcement. There are too many agencies behind public transport, which lends to incoherent policy, expensive red tape and a poor regulatory environment. Points 4 and 6 especially won’t work without a local, responsive and centralised authority.

No objection here. The decision making and regulatory environment here is, to put it kindly, in a complete mess. Giving state governments the power (and fund)to manage their own policy is one of the way to solve this.

4. Revamp the bus system – assign fare and routes, and let private (yes, private, not GLC) companies bid for routes (or groups of routes). A system of fines can be used to ensure bus companies to a set of KPIs – like frequency, maintenance of busses, etc. The contract can be re-tendered if a private company fails to meet KPIs.

I am not sure if private can do a better job. There are a lot of unprofitable routes even in the busiest areas in Klang Valley. In Kota Damansara, where I live, the private company is taking only the popular routes and even then, the frequency leaves much to be desired. In fact, I would say RapidKL is doing a better job. Additionally, if I’m not mistaken this has been tried before and the results were not satisfactory, to say the least.

5. Because busses won’t be enough, I’d say allow mini-busses or paratransit. Essentially paratransit involves flexible routes. It is extremely efficient (try living in a city that depends on it, like Bandung – its awesome). And it can be modernised, if Hong Kong is any indicator. And because this can be an entirely private endervour, it doesn’t cost a public dime.

This could work although I have no knowledge whatsoever on HK’s mass transport system. I would prefer the modernised version though.

6. Deregulate taxi fares. Or at least set them at market clearing rates. Taxis, while should be treated as chauffered cars in things like tolls (currently they pay less than private cars) and congestion charge, is necessary to a functioning public transport system. The wide availability of taxis makes it easier for commuters to give up their cars – if they’re in a hurry or when public transport doesn’t cover a journey (such as late-night journeys), they aren’t left on a lurch. A market-clearing metre rate will end touting and price-jacking, and will encourage more taxis to enter the market.

Based on my conversations with taxi drivers, the current rates are actually quite fair. In fact, more taxis are entering the market now due to the new policy of awarding permits directly to the drivers. Whatever issues plaguing the taxi services, it has to do with enforcement, or lack thereof. I doubt implementing market-clearing meter rate would solve any of the issues.

7. For trains/rapid transit, I see past investment as a sunk cost – if there is no way to run the system without actively subsidising it, I think the mature thing to do is to shut down rail services. By actively subsidising lines, it will create an impediment towards good, forward-looking investments when Malaysia is better capable of making them.

What are the alternatives? Shut down rail services and do what exactly? I would rather the govt subsidises rail services than petrol. Until the no of public transport users reaches a certain level where it can be profitably ran by private entities, then the simple fact is the govt has to subsidise it. The benefits go beyond dollars and cents really; improved productivity, more quality time with families, improved living standards, less pollution, more disposable income in people’s pockets, less public investment needed in building and maintaining public roads, etc etc.